Why Brands and Retailers Are Going D2C on Marketplaces
Today, customer buying habits have forced brands to think differently about how and where they present their products. At Pricefalls Marketplace, we have witnessed brands opening stores that did not sell direct-to-consumer 5 years ago. At the same time, major brands are transforming their own domains from brand content and information centers to fully transactional e-commerce websites. They are also utilizing the many 3rd party marketplaces that acquire new customers to their brand.
Brands who have taken the leap to start selling direct-to-consumer are facing a number of challenges around non-branded search trends, price transparency, and private label encroachment. Both retailers and brands have seen a change in shopping behavior, particularly in millennials. Consumers are more often choosing competitive shopping environments like marketplaces and shopping engines over niche retail. In fact, marketplaces now make up approximately 50% of the global online retail market.
Major marketplaces like Amazon, Walmart, and new marketplaces like Pricefalls, are outpacing retail growth because of competitive, endless aisle concepts. Furthermore, consumers are shopping more and more by category rather than brand and as marketplaces continue to gain online retail market share, brand loyalty is becoming more difficult than ever to sustain.
Another layer of complexity for brands and traditional retailers is the rise of private label products. Retailers are leveraging marketplace loyalty and trust to build private label businesses. Since 2012, we’ve seen an explosion in private label sales on marketplaces from 3rd party retailers.
Brands have tough decisions to make when it comes to selling on marketplaces. With vertical integration, the brand has much more control, decreasing dependence on traditional distribution. That said, Amazon has control of 52% of retail search, so a decision to avoid the channel all together is not easy.
The two largest, Amazon and Walmart, are quickly stealing market share in several CPG categories. At Amazon, I built out the private label brand, Amazon Basics, and from the beginning, we were convinced that we could take a big piece of the market in core categories like consumer electronics, baby, and others. Today, categories that have historically offered 5-10 major known brands now have hundreds or thousands of brands, many powered through 3rd party private labelers at discount prices.
Brands are faced with a difficult challenge: Stay relevant, be everywhere, be efficient, and also grow brand value. But these challenges are not unsolvable, and brands must take advantage of marketplaces with direct-to-consumer concepts to continue to grow their holistic customer strategy.
Capture New Eyes and Control Price on Marketplaces
Over the past few months, we’ve seen a number of major retailers reducing physical operations and investing in digital. Just in the past year, Macy’s, Sports Authority, The Limited, Wet Seal, American Apparel, and BCBG have all closed 100’s of stores or closed their doors entirely. While brick-and-mortar retail growth remains stagnant, it still resonates with the customer.
As mentioned, customers want buying choices that maximize their time and lifestyle. This is why we are seeing brands going direct to consumer to broaden their reach. This does not come without challenges as marketing your own brand website through an in-house marketing team/agency has become more difficult and expensive than ever.
Marketplaces are exceptionally effective because the fees are lower than traditional digital marketing channels. Over the last two years we have seen many online brands/retailers fail trying to build their own customer acquisition strategies and not growing the lifetime value of their base, once acquired. Marketplaces create an efficient place to capture transactions, and at Pricefalls, we’re allowing retailers the ability to capture not only the transaction but also the customer.
Blog post by Tony Chvala, COO and CMO, Pricefalls Marketplace